Friday, 31 October 2014

Friday Research: Breath Fire into Your Retail Pricing Strategies

When Will You Use This?

Creating retail pricing and discount strategies.

What’s The Red-Letter Bite Today?

We all love good deals and low price. So can one retail pricing strategy be better than the other?

Current research* looked at the impact different pricing
strategies have on the stores people shop at when they do not know the product prices unless they
visit the store. Results revealed that when trying to maximize savings, consumers will
choose retailers they believe offer the lowest prices the majority of the time.

As authors explain, “to simulate 100 weekly purchases from a retail store, study participants were asked to
purchase products from one of two competing retailers 100 different times. Participants
were given a monetary incentive to minimize their total spending and were instructed to
base their selections strictly on price.
On each shopping trip, participants first selected a retailer before they were shown the
store prices for that week. The authors manipulated the pricing strategies, but in most
cases, one retailer used deep-discount pricing while the competing retailer used everyday
low pricing or frequent (but small) discounts. While the average price of the two retailers
was the same for most experiments, results showed that people consistently tend to
choose the retailer they believe is less expensive more often than the retailer they believe
is cheapest on average. This pattern held whether or not the retailer used frequent
discounts or an everyday low price guarantee."

Discount rule: many little ones are better than banging one!

Addition To Your Bag of Tricks

Authors suggest that this research offers great insight "for companies regularly using deep discounts or pricing their
products lower than their competitors’ average prices. The authors suggest a more
effective strategy is to simply offer prices that are generally always lower than their
competitors’ prices. <..>One reason consumers find these retailers so attractive is that their
product prices tend to be cheaper than those of their competitors on the majority of
shopping trips. Consumers seem to prefer many small discounts to a few large ones."